Federal Reserve Chair, Jerome Powell, declared on May 3 that the Central Bank has increased its policy interest rate by 0.25% to address escalating inflation and promote economic stability.
The Central Bank is a financial institution that is responsible for overseeing and regulating the monetary policy of a country or a group of countries. The Central Bank acts as the banker to the government, as well as to other commercial banks within the country. It is also responsible for issuing currency, setting interest rates and managing the country's foreign exchange reserves. The Central Bank plays a crucial role in maintaining economic stability and controlling inflation within a country's economy.
During a press conference, Chair Powell announced that he hopes to prevent another interest increase.
"We are committed to learning the right lessons from this episode and will work to prevent events like these from happening again," Powell said.
In an attempt to address the issue of increasing inflation and to stabilize the economy, the central bank increased its policy interest rate by 0.25%. Although he acknowledged the difficulties posed by high inflation, Powell emphasized the Fed's strong commitment to reducing it to its 2% target. He also underscored the importance of fortifying the banking sector to prevent a recurrence of events such as the banking crisis that occurred in March 2023.
"Without price stability, the economy does not work for anyone," Powell said.
Powell remarked that the US economy experienced a substantial slowdown last year, with GDP growing at a subpar pace of 0.9%. Even though consumer spending picked up, economic expansion continued to be sluggish in the first quarter of 2023, at 1.1%. Despite the tight labor market, which saw an average gain of 345,000 jobs per month in Q1 2023, inflation remained significantly above the Fed's target of 2%, causing considerable difficulty for the public.
"In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all," Powell said.
The Fed's actions are geared towards reestablishing price stability and fostering a period of sustainable economic growth. Powell added that the Fed will take a data-dependent approach to determine the extent to which additional policy firming may be appropriate in the future.